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Author: 


Home  Market  Club 


Title: 


The  income  tax  question 
(second  pampiiiet) 

Place: 

[Boston] 

Date: 

[1909-1910] 


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491 
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Home  market  club,  Boston. 

Tho  income  tax  question  (second  pcunphlct) 
^Bostonj  Published  by  the  Homo  market  club, 
1909-1910. 

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THE  LIBRASJES 


School  of  Business 


1 


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'^•^^^fcl  of  ftiflinoflfi  Ubtw 


JUL     4  1844 


The  Income  Tax  Question 


(SECOND  PAMPHLET) 


ObjectionsioV  Federal  Income  Tax  by 
Senator \H ill  of  New  York 

Arguments  of  Richard  Olney  for  the  Tax  and  of 
Joseph  H.  Choate  Against  It. 

Decision  of  the  Supreme  Court  in  1895,  Holding  the 
Income  Tax  Sections  of  the  Wilson  Law 

Unconstitutional. 

Opinions  of  the    Justices    For  and  Against. 

Applicability  to  the  Pending  Amendment. 


c. 


•  «   »» 


--Y 


•  I        « 


1909-1910 
Published  by  the  Home  Market  Club 


CONTENTS. 


PAGE 

Brown,  Justice,  Dissenting  Opinion 16 

Ghoate,  Joseph  H.,  Argament  Before  Supreme  Court 7 

Conclusion— ^Present  Question  Stated 18 

Decision  Against  Wilson  Law^s  Income  Tax  Sections  and  How  the  Justices 

Stood 11 

Field,  Justice,  Opinion  Against  Tax 14 

Fuller,  Chief  Justice,  Opinion  Against  Tax 16 

Grounds  of  the  Decision,  as  Stated  bj  the  Chief  Justice 12 

Harlan,  Justice,  Dissenting  Opinion 18 

Hill,  David  B.,  Objections  to  a  Federal  Income  Tax 8 

Introduction,  Stating  Substance  of  Both  Pamphlets 8 

Jackson,  Justice,  Dissenting  Opinion 16 

Olney,  Att'y  Gen'l,  Argument  Before  Supreme  Court 6 

White,  Justice,  Dissenting  Opinion 18 


•  •  .  • 


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'^' 


Arguments  and  Opinions  in  the  Latest 
Federal  Income  Tax  Case. 


In  an  earlier  pamphlet  on  this  sub- 
ject, the  elaborate  brief  of  Mr. 
Southmayd  of  New  York,  in  the 
Pollock  case,  shows  the  arrangement 
between  the  States  and  the  United 
States,  fixed  in  the  Constitution,  by 
which  customs  and  excises  are  given 
to  the  general  government  and  taxes 
on  property  are  given  to  the  sev- 
eral states,  and  for  emergencies  the 
privilege  of  taxing  property  or  in- 
comes is  given  to  the  federal  govern- 
ment under  the  condition  that  the 
tax  shall  be  apportioned  among  the 
states  according  to  their  population, 
so  that  no  new  section  of  the  coun- 
try, where  incomes  may  be  small 
enough  to  escape  taxation,  can  have 
the  power  to  throw  the  burden 
wholly  upon  the  older  and  wealthier 
sections. 

That  pamphlet  also  contains  a 
very  informing  article  on  the  British 
income  tax,  by  Sir  Guilford  L. 
Molesworth,  in  which  the  opinions 
of  many  other  British  statesmen  and 
economists  are  cited,  all  showing 
how  much  the  tax  is  disliked  and 
how  badly  it  is  misused  in  that 
country. 

The  pamphlet  now  in-  hand  pre- 
sents: 

(i)  The  concise  summary  of  objec- 
tions to  a  federal  income  tax  pre- 
sented in  the  United  States  Senate, 
June  28,  1894,  by  Senator  David  B. 
Hill  (Dem.)  of  New  York. 

(2)  The  argument  for  the  tax,  in 
the  Pollock  case  arising  under  that 
law,  by  Attorney  General  Richard 
Olney  of  Boston,  and  the  argument 


against  the  tax,  by  the  Honorable 
Joseph  H.  Choate  of  New  York. 

(3)  Summaries  of  the  opinions, 
majority  and  minority,  of  the  Jus- 
tices of  the  Supreme  Court. 

Some  portions  of  these  arguments 
and  opinions  are  devoted  to  showing 
why  that  tax  was  or  was  not  consti- 
tutional and  so  do  not  directly  ap- 
ply to  the  pending  proposition  to 
change  the  Constitution;  but  other 
portions  bear  upooi  it,  because  they 
show  the  taxation  adjustment  made 
between  the  States  and  the  Federal 
Government,  the  reasons  for  which 
still  subsist. 

This  pamphlet,  therefore,  makes  a 
fair  and  non-partisan  presentation  of 
the  question  by  the  most  eminent 
jurists  in  the  country  and  is  very 
helpful  to  those  who  desire  to  reach 
correct  conclusions  on  the  pending 
amendment. 


DAVID  B.  HILL'S  OBJECTIONS. 

In  the  Senate  committee  of  the 
whole,  June  28,  1894,  the  income  tax 
was  agreed  to  as  a  part  of  the  tariff 
bill.  Senator  Hill  of  New  York 
(Dem.)  filed  the  following  objections 
to  it: 

First — An  income  tax  has  no  legiti- 
mate place'  in  a  tariff  reform  bill.  The 
effort  to  retain  it  in  this  bill  has  hin- 
dered, delayed  and  sacrificed  the  cause 
of  tariff  reform. 

Second — An  income  tax  is  neither  a 
Democratic  nor  a  Republican  principle, 
and  has  never  been  approved  by  the  peo- 
ple at  the  polls,  but  is  one  of  the  doc- 
trines of  the  Populist  party. 

Third — It  is  an  unnecessary  tax.    The 


ARGUMENTS  AND  OPINIONS  IN  THE 


needs   of  the   treasury  will  not   requir 
the  proceeds  of  this  tax,  but  sufficient 
revenues  will  be  realized  under  the  other 
provisions  of  the  measure. 

Fourth — It  is  a  direct  tax  within  the 
meaning  of  the  Constitution,  and,  not 
being  laid  in  proportion  to  population,  is 
unconstitutional  and  cannot  be  enforced. 

Fifth — It  is  unequal,  unjust  and  sec- 
tional in  its  design  and  operation,  and  is 
principally  urged  by  the  representatives 
of  those  States  which  will  be  least  af- 
fected by  its  provisions.  It  is  an  attack 
upon  the  thrift,  the  energy  and  the  en- 
terprise of  the  North. 

Sixth — It  is  the  revival  of  an  odious 
tax  in  a  time  of  profound  peace. 

Seventh — The  exemption  of  all  in- 
comes not  exceeding  $4,000  is  an  exemp- 
tion unprecedented  in  the  history  of  in- 
come tax  legislation  and  stamps  the 
measure  as  the  most  offensive  species  of  ** 
class  legislation.  Either  substantially  all 
incomes  should  be  taxed  or  none  at  all. 

Eighth — It  is  unjust  in  its  discrimina- 
tions. It  exempts  the  income  from 
$635,000,000  of  Government  bonds,  but 
denies  the  same  exemption  to  State 
bonds.  It  exempts  $4,000  from  the  in- 
dividual income  of  a  citizen  derived 
from  his  general  business,  but  denies 
him  the  same  exemption  if  his  income  is 
derived  from  a  corporate  investment. 

Ninth — It  is  retroactive  in  its  opera- 
tion. It  compels  the  payment  of  a  tax 
upon  incomes  realized  since  Jan.  i,  1894. 

Tenth — It  usurps  those  fields  of  rev- 
enue which  belong  to  the  States.  This 
measure  not  only  provides  for  income 
taxation  proper,  but  also  includes  an  in- 
heritance and  gift  tax,  thereby  trespass- 
ing upon  a  field  already  occupied  by 
many  States.  Incomes,  if  taxed  at  all, 
should  be  taxed  by  State  rather  than 
Federal  authority. 

Eleventh — Its  provisions  are  inquisi- 
torial and  offensive  in  their  character. 
The  political  agents  of  the  Government 
are  vested  with  vast  powers,  which  are 
Mable  to  abuse.  It  is  a  system  of  taxa- 
tion unsuited  for  a  free  government. 


Twelfth — It  violates  the  Constitution, 
because  it  usurps  those  revenues  derived 
from  certain  domestic  corporations 
which  the  States  have  themselves 
created,  and  the  revenues  of  which  cor- 
porations the  States  have  set  apart  for 
the  uses  of  their  own  State  Govern- 
ments. The  proposed  tax  is  an  attack 
upon  the  sovereignty  of  the  States. 

Thirteenth — The  absorption  of  these 
legitimate  State  revenues  by  the  General 
Government  will  necessarily  lead  to  in- 
creased direct  taxation  by  the  States  and 
add  to  the  existing  burden  of  the  people. 

Fourteenth — The  tax  proposed  is 
double  that  recommended  by  Secretary 
Carlisle. 

Fifteenth — It  will  duplicate  taxation, 
create  friction  and  promote  conflict  or 
contention  between  the  General  Govern- 
ment and  the  States,  is  contrary  to  the 
established  policy  of  the  Government, 
is  a  step  toward  Socialism  and  is  un- 
wise from  every  point  of  political  ex- 
pediency. 

Senator  Manderson  (Rep.)  of  Ne- 
braska, moved  the  following  addi- 
tional objection,  which  Mr.  Hill 
accepted : 

It  creates  a  class  to  pay  a  part  of  the 
expenses  of  the  Government,  and  is  the 
first  step  toward  the  creation  of  a  privi- 
leged few  constituting  a  moneyed  aris- 
tocracy, which,  contributing  from  their 
abundant  revenues  or  incomes  to  the 
support  of  the  Government,  will  rule  it. 

Mr.  Hill's  motion  to  strike  out  the 
income  tax  sections  was  defeated, 
yeas  23,  nays  40.  Three  Democrats, 
Hill  of  New  York,  and  Smith  and 
McPherson  of  New  Jersey  were 
against  the  tax.  Three  Populists 
and  six  Republicans,  all  from  the  far 
West,  voted  with  the  Democrats, 
most  of  whom  were  from  the  West 
and  South,  for  the  tax. 


LATEST  FEDERAL  INCOME  TAX  CASE. 


THE  ARGUMENTS. 


There  was  a  large  array  of  em- 
inent lawyers  on  both  sides  at  the 
hearing  before  the  Supreme  Court, 
in  March,  1895 — those  against  the 
tax  being  Joseph  H.  Choate,  Qar- 
ence  A.  Seward,  Benjamin  H.  Bris- 
tow,  W.  D.  Guthrie,  David  Wilcox, 
Charles  Steele  and  George  F.  Ed- 
munds, and  those  for  the  tax  being 
Attorney  General  Olney,  his  assist- 
ant, Mr.  E.  B.  Whitney,  and  Mr. 
James  C.  Carter  of  New  York. 

In  order  that  the  arguments  may 
be  better  understood,  it  is  well  to 
refer  to  the  provisions  of  the  Con- 
stitution which  bear  upon  the  case. 
They  are: 

Art.  I,  Sec.  2,  Paragraph  2: — "Repre- 
sentatives and  direct  taxes  shall  be  ap- 
portioned among  the  several  states 
which  may  be  included  within  this 
Union  according  to  their  respective 
numbers"— that  is,  the  numbers  of  the 
people. 

Art.  I,  Sec.  8:— "The  Congress  shall 
have  power  to  lay  and  collect  taxes, 
duties,  imposts  and  excises,  .  .  .  but  all 
duties,  imposts  and  excises  shall  be  uni- 
form throughout  the  United  States." 

Fifth  Amendment,  latter  part:  "Nor 
[shall  any  person]  be  deprived  of  life, 
liberty  or  property,  without  due  process 
of  law;  nor  shall  private  property  be 
taken  for  public  use,  without  just  com- 
pensation." 

Most  of  the  counsel  closely  fol- 
lowed the  line  of  the  law,  but  Mr. 
Carter  gave  a  thought  to  wrhat  he 
considered  public  opinion  and  said 
that  "a  triumphant  majority"  will 
have  way,  "if  need  be,  over  the  ruins 
of  Constitutions  and  of  courts." 
Something  of  this  feeling  undoubt- 
edly exists  today.  Nevertheless  it  is 
safe  to  assume  that  the  people  do 
not  wish  to  revolutionize  the  govern- 
ment unless  convinced  that  methods 


and  agreements  which  were  neces- 
sary to  its  formation  and  which  have 
worked  well  for  one  hundred  and 
twenty  years  can  be  improved  for 
the  future. 


ARGUMENT  OF  ATTORNEY-GEN- 
ERAL OLNEY  FOR  THE  LAW. 

Mr.  Olney  devoted  his  argument  on 
the  part  of  the  United  States  to  the 
constitutional  questions  which  the  sev- 
eral plaintiffs  alleged  to  be  involved  in 
the  cases  presented. 

Many  of  the  objections  raised  seemed 
to  him  to  be  simply  perfunctory — taken 
pro  forma  and  by  way  of  precaution. 

No  time,  he  thought,  need  be  ex- 
pended in  discussing  the  averments  that 
the  income  tax  law  was  an  invasion  of 
vested  rights  and  took  property  without 
due  process  of  law. 

These  propositions  were  generalities, 
and,  if  there  was  anything  in  them,  it 
was  because  they  comprehended  others, 
which  were  the  only  real  subjects  of 
profitable  discussion. 

Suppose  it  to  be  true  that  the  income 
tax  law  undertook  to  ascertain  the  in- 
comes of  citizens  by  methods  which 
were  not  only  disagreeable,  but  were  in- 
fringements of  personal  rights.  The 
consequence;  would  be  not  that  the  law 
was  void,  but  that  the  hotly  denounced 
inquisitorial  methods  could  not  be  re- 
sorted to. 

Similar  considerations  would  apply  to 
the  objection  that  the  law  was  to  be 
pronounced  void  because  taxing  the 
agencies  and  instrumentalities  of  the 
governments  of  the  several  states. 

It  had  not  yet  been  definitely  adjudi- 
cated, and  it  was  by  no  means  to  be  ad- 
mitted, that  the  income  of  state  and 
municipal  securities  was  not  taxable  by 
the  United  States  when  assessed  as  a 
part  of  the  total  income  of  the  owners 
under  a  law  assessing  income  generally, 
and  not  discriminating  between  such  se- 
curities and  others  of  the  like  character. 

But,  suppose  the  contrary,  the  re- 
sult would  be  not  to  find  tliat  the  law 
was  bad  in  toto,  but  that  it  was  bad  only 


6 


ARGUMENTS  AND  OPINIONS  IN  THE 


as  to  the  income  from  state  and  munici- 
pal securities. 

If  I  am  right  in  these  observations  the 
constitutional  contention  of  the  plaintiffs 
simmers  down  to  two  points: 

One  is  that  an  income  tax  is  a  direct 
tax,  and  must  be  imposed  according  to 
the  rule  of  apportionment,  and  the  other 
is  based  upon  the  alleged  violation  of 
the  constitution  with  regard  to  uni- 
formity. I  do  not  stop  to  discuss  the 
question  what  the  constitutional  rule  of 
apportionment  is. 

I  do  not  think  I  ought  to  delay  the 
court  for  any  considerable  time  with 
the  question  whether  an  income  tax  is 
direct  or  indirect.  Whether  an  income 
tax  is  what  the  constitution  describes  as 
a  "direct  tax"  is  a  question  as  com- 
pletely concluded  by  repeated  adjudica- 
tions as  any  question  can  be.  It  is  a 
direct  tax  within  the  meaning  of  the 
constitution,  unless  five  concurring 
judgments  of  this  court  have  all  been 
erroneous. 

The  attorney-general  denied  that  any 
land  tax  was  aimed  at  or  attempted  by 
the  statute — there  was  no  lien  on  land 
for  payment.  The  whole  scope  and 
tenor  of  the  statute  showed  the  con- 
templated subject  of  taxation  to  be  per- 
sonal   property   and   nothing    else. 

Discussing  the  meaning  of  the  word 
"uniform"  as  applied  to  the  collection  of 
imposts,  excises,  etc.,  he  declared  that 
the  word  had  a  territorial  application 
and  no  other.  "A  federal  tax,"  he  said, 
"which  is  not  a  poll  tax  nor  a  tax  on 
land,  must  be  the  same  in  all  parts  of 
the  country.  It  cannot  be  one  thing  in 
Maine  and  another  thing  in  Florida. 
The  law  providing  for  such  a  tax  must 
be  like  a  bankruptcy  law  or  a  naturali- 
zation law.  It  must  have  the  same 
operation  everywhere,  wholly  irrespec- 
tive of  state  lines." 

The  power  to  tax  was  for  practical 
use,  and  was  necessary  to  be  adapted  to 
the  practical  conditions  of  human  life. 
These  were  never  the  same  for  any  two 
persons,  and  as  applied  to  any  com- 
munity, however  small,  were  infinitely 
diversified.  Nothing  was  more  evident 
or  had  been  oftener  declared  by  courts 
and  jurists  than  that  absolute  equality 
of  taxation  was  impossible.  No  system 
had  been  or  could  be  devised  that  would 


produce  any  such  result.  No  country 
or  state  of  this  Union  had  ever  adopted 
a  plan  of  taxation  that  did  not  exempt 
some  portions  of  the  community  from  a 
burden  that  was  imposed  upon  others. 
The  power  to  do  so  was  unquestioned, 
and  was  universally  exercised. 

It  was  quite  beside  the  issue  to  argue 
in  this  or  any  other  case  that  Congress 
had  mistaken  what  public  policy  re- 
quired. On  that  point  Congress  was  the 
sole  and  final  authority,  and  its  decision, 
once  made,  controlled  every  other  de- 
partment of  the  Government. 

No  exemption  was  made  by  the 
statute  in  favor  of  a  class  that  was  not 
based  on  some  obvious  line  of  public 
policy— and,  that  class  being  established, 
one  uniform  rule  was  applicable  to  its 
members. 

It  is  manifest  that  in  this  distinction 
between  people  with  incomes  over  $4,- 
000  and  those  with  incomes  under  that 
amount  Congress  was  proceeding  upon 
definite  views  of  public  policy,  and  was 
aiming  at  accomplishing  a  great  public 
object.  It  was  seeking  to  adjust  the 
load  of  taxation  to  the  shoulders  of  the 
community  in  the  manner  that  would 
make    it    most    easily    borne    and    most 

lightly  felt. 

So  with  business  corporations.  Their 
net  incomes  were  taxed  at  the  standard 
rate  of  two  per  cent.,  but  undiminished 
by  the  standard  deduction  of  $4,000.  The 
result  might  be  that  a  man  in  business 
as  a  member  of  a  corporation  was  tax- 
able at  a  little  higher  rate  than  a  man  in 
the  same  business  by  himself  or  as  co- 
partner. 

It  was  common  knowledge  that  cor- 
porations are  so  successful  an  agency 
for  the  conduct  of  business  and  the  ac- 
cumulation of  wealth  that  a  large  sec- 
tion of  the  community  viewed  them  with 
intense  disfavor.  When,  therefore,  this 
income  tax  law  made  a  special  class  of 
business  corporations,  and  taxed  their 
incomes  at  a  higher  rate  than  that  which 
applied  to  the  incomes  of  persons  not 
incorporated,  it  but  recognized  existing 
social  facts  and  conditions  which  it 
would  be   folly  to  ignore. 

In  conclusion,  Mr.  Olney  said:  "It 
would  certainly  be  a  mistake  to  infer 
that  this  great  array  of  counsel,  this 
elaborate   argumentation   and   these   nu- 


LATEST  FEDERAL  INCOME  TAX  CASE. 


merous  and  voluminous  treatises,  mis- 
called by  the  name  of  briefs,  have  any 
tendency  to  indicate  anything  extraordi- 
nary or  unique  either  in  the  facts  before 
the  court  or  in  the  rules  of  law  which 
arc  applicable  to  them.  I  venture  to 
suggest  that  all  this  laborious  and  eru- 
dite and  formidable  demonstration  is 
bound  to  be  without  effect  on  one  dis- 
tinct ground.  In  its  essence  and  in  its 
last  analysis  it  is  nothing  but  a  call  upon 
the  judicial  department  of  the  govern- 
ment to  supplant  the  political  in  the 
exercise  of  the  taxing  power;  to  substi- 
tute its  discretion  for  that  of  Congress 
in  respect  of  the  subjects  of  taxation, 
the  plan  of  taxation,  and  all  the  dis- 
tinctions and  discriminations  by  which 
taxation  is  sought  to  be  equitably  ad- 
justed to  the  resources  and  capacities  of 
those  who  have  it  to  bear.  Such  an  ef- 
fect, however  weightily  supported,  can, 
I  believe,  have  but  one  result.  It  is  in- 
evitably predestined  to  failure,  unless 
this  court,  for  the  first  time  in  its  his- 
tory, overlook  and  overstep  the  limits 
which  separate  the  judicial  from  the 
legislative  power,  and  the  scrupulous 
observance  of  which  is  absolutely  es- 
sential to  the  integrity  of  our  constitu- 
tional system." 


ARGUMENT   OF   MR.    CHOATE 
AGAINST    THE    TAX. 

Hon.  Joseph  H.  Choate  of  New  York 
said:  "It  never  would  have  occurred  to 
me  to  present  either  an  opening  or  a 
closing  argument  to  this  great  and 
learned  court  that  if,  in  their  wisdom, 
they  found  it  necessary  to  protect  a 
suitor  who  sought  here  to  invoke  the 
protection  of  the  constitution  which  was 
created  for  us  all,  possibly  the  popular 
wrath  might  sweep  the  court  away.  It 
is  the  first  time  I  ever  heard  that  argu- 
ment presented  to  this  court  or  any 
other,  and  I  trust  it  will  be  the  last. 

"1  thought  until  today  that  there  was 
a  constitution  of  the  United  States,  and 
that  the  business  of  the  executive  arm 
was  to  uphold  the  constitution.  I 
thought  that  this  court  was  created  for 
the  purpose  of  maintaining  the  consti- 
tution as  against  unlawful  conduct  on 
the  part  of  Congress.  It  is  news  to  me 
that  Congress  is  the  sole  judge  of  the 


measure  of  the  powers  confided  to  it 
by  the  constitution,  and  it  is  also  news 
to  me  that  that  great  fundamental  prin- 
ciple that  underlies  the  constitution, 
namely,  the  equality  of  all  men  before 
the  law,  has  ceased  to  exist." 

Mr.  Choate  said  that  on  the  day  of 
Gen.  Sherman's  funeral  ex-President 
Hayes  said  to  him  that  he  (Choate) 
would  probably  live  to  see  the  day  when 
in  the  case  of  the  death  of  any  man  of 
large  wealth  the  state  would  take  for  it- 
self all  above  a  prescribed  limit  of  his 
fortune,  and  divide  it  or  apply  it  to  the 
equal  use  of  all  the  people.  He  (Choate) 
had  looked  upon  that  remark  as  the 
wanderings  of  a  dreamer,  and  yet  in  less 
than  five  years  he  found  himself  in  the 
supreme  court  of  the  United  States  con- 
testing the  validity  of  an  alleged  act  of 
Congress,  which  was  defended  by  the 
authorized  legal  representative  of  the 
government,  upon  the  plea  that  it  was 
only  a  tax  levied  upon  extremely  rich 
men.  It  was  defended  upon  principles 
as  communistic,  socialistic,  populistic, 
as  has  ever  been  addressed  to  any  po- 
litical assembly  in  the  world. 

Mr.  Carter,  continued  Mr.  Choate,  had 
said  that  in  the  convention  which 
framed  the  constitution  there  was  one 
ever  present  fear.  This  was  that  by  a 
combination  of  states  an  unjust  tax 
might  be  put  upon  a  single  state  or  a 
little  group  of  states.  Mr.  Choate  di- 
rected the  attention  of  the  court  as  to 
how  the  present  law  would  strike.  In 
1873,  Massachusetts,  New  York,  New 
Jersey  and  Pennsylvania  paid  four-fifths 
of  the  tax  on  incomes  above  $2,000. 
What  was  their  political  representation 
in  the  House  of  Representatives,  which 
only  can  initiate  the  passage  of  revenue 
bills?  Eighty-three  out  of  356,  or  a  little 
less  than  one-fourth.  The  increase  of 
exemption  from  $2,000  to  $4,000  would 
bear  upon  those  states  with  vastly 
greater  force,  so  that  they  would  pay 
nineteen-twentieths  of  the  tax  under  a 
law  "imposed  upon  them  by  other 
states  who,  as  the  chief  justice  has 
quickly  seen  in  the  course  of  the  argu- 
ment, will  not  bear  a  dollar  of  it. 

This  iniquitous  result,  Mr.  Choate 
said,  had  been  brought  about  by  an  ex- 
press violation  of  two  of  the  leading 
prohibitive  restraints  of  the  constitution. 


8 


ARGUMENTS  AND  OPINIONS  IN  THE. 


LATEST  FEDERAL  INCOME  TAX  CASE. 


and,  despite  the  contention  of  the  at- 
torney-general and  his  associates  that 
the  state  of  things  could  not  be  helped, 
Mr.  Choate  thought  it  could.  The  main 
argument  presented  by  Mr.  Carter  in 
support  of  the  law  was  that  the  men 
upon  whom  it  was  imposed  were  too 
rich.  He  claimed  that  $20,000  might 
have  been  made  the  minimum  of  exemp- 
tion in  the  law  and  that  there  would 
have  been  no  help  for  it.  He  said  in  his 
brief,  that,  although  we  could  not  tax 
John  Jones  by  name,  however  rich  he 
might  be,  we  could  make  a  class  to  des- 
ignate him  and  so  tax  him. 

Now,  continued  Mr.  Choate,  if  you  ap- 
prove this  law,  with  this  iniquitous  ex- 
emption of  $4,000,  and  this  communistic 
march  goes  on,  and  five  years  hence 
they  come  to  you  with  an  exemption  of 
$20,000  and  a  tax  of  20  per  cent.,  how 
can  you  meet  it,  in  view  of  the  decision 
they  ask  you  to  render?  There  is  pro- 
tection now  or  never  under  this  law. 
My  learned  friend  says  you  cannot  ap- 
ply any  limit.  He  says  that  no  matter 
what  Congress  does  in  the  matter  of  a 
limit,  if  in  their  views  of  so-called — 
what  did  he  call  it? — sciology?  political 
economy? — they  fix  a  limit  of  a  mini- 
mum of  $20,000  or  a  minimum  of  $100,- 
000,  this  court  will  have  nothing  to  say 
about  it.  I  agree  that  it  will  have  noth- 
ing to  say  if  it  lets  go  its  hold  upon 
this  law — upon  a  law  passed  for  such  a 
purpose,  accomplishing  such  a  result  by 
such  means. 

I  thought  that  the  fundamental  object 
of  all  civilized  government  was  the 
preservation  of  the  right  of  private 
property.  That  is  what  Mr.  Web- 
ster said  at  Plymouth  Rock  in 
1820,  and  I  supposed  that  all  educated, 
civilized  men  believed  it.  According  to 
the  doctrines  that  have  been  propounded 
here  this  morning,  even  that  great  fun- 
damental principle  has  been  scattered  to 
the  wind. 

Washington  and  Franklin  were  alive 
to  that  sacred  principle,  and  if  they 
could  have  foreseen  that  in  a  short  time 
— for  what  were  115  years  in  the  life  of 
the  republic? — it  would  be  claimed  in 
the  supreme  court  of  the  United  States 
that,  not  despite  that  constitution,  but 
by  means  of  it,  they  had  helped  create 
a  combination  of  states  that  could  pass 


a  law  for  breaking  into  the  strong 
boxes  of  the  citizens  of  other  states,  and 
giving  out  the  wealth  of  everybody 
worth  more  than  $100,000  for  general 
distribution  throughout  the  country, 
they  would  both  have  been  keen  to 
erase  their  signatures  from  an  instru- 
ment that  would  result  in  such  conse- 
quences. The  spirit  that  invaded  the 
halls  of  Congress  was  seeking  to  throw 
up  its  entrenchments  in  the  supreme 
court  of  the  United  States.  If  this  law 
were  upheld,  the  first  parallel  would  be 
carried,  and  then  it  would  be  easy  to 
overcome  the  whole  fortress  on  which 
the  rights  of  the  people  depended. 

Mr.  Choate  conceded  that  Congress 
had  plenary  power  to  tax,  and  that  it 
was  necessary,  in  order  to  maintain  his 
position,  for  him  to  show  either  that 
Congress  had  not  the  power  to  pass  the 
sections  of  the  act  complained  of,  or 
that,  in  passing  them,  it  had  trans- 
gressed the  measure  of  the  exercise  of 
that  power  entrusted  to  it. 

He  called  attention  to  the  distribution 
of  the  power  of  taxation  and  the  limita- 
tions of  the  exercise  of  that  power,  from 
the  operation  of  which  it  could  not,  by 
any  device,  escape. 

Mr.  Choate  said  he  did  not  impute  to 
the  constitutional  convention  such  heed- 
lessness or  ignorance  as  was  suggested 
in  one  of  the  briefs  on  the  other  side; 
that  he  did  not  believe  or  understand 
that  it  covered  the  whole  subject  of 
taxation,  by  its  declarations  with  respect 
of  direct  taxes,  imposts,  excises  and 
duties. 

How  about  the  corpus  of  personal 
property?  If  a  tax  upon  it  was  neither 
a  direct  tax,  nor  an  impost  or  excise  or 
a  duty,  what  would  follow?  Just  that 
which  Chief  Justice  Chase  said  many 
years  ago  would  apply — that  it  was  a  tax 
to  be  enforced  by  Congress,  and  laid 
neither  according  to  apportionment  nor 
of  equality  and  uniformity.  And  yet  in 
all  that  100  years  nobody  had  even  sug- 
gested that  such  a  tax  could  be  so  en- 
forced and  collected. 

The  true  rule  of  construction  was  to 
impute  to  the  work  of  the  constitutional 
convention  the  same  interpretation  that 
everybody  else  gave  to  it  at  the  time, 
and  had  ever  since  given  it.  Mr.  Wad- 
leigh   of  New   Hampshire   had  the  true 


idea  when  he  said,  discussing  the  opera- 
tion of  the  taxing  clause,  that  it  would 
bear  hardly  upon  his  state,  but  that  New 
Hampshire  would  consent  to  it  in  order 
to  have  the  constitution  adopted.  Why 
should  it  bear  hardly  upon  New  Hamp- 
shire,  with  its  mountains  and  rocky  hill- 
sides, were  it  not  that  all  taxes,  except 
duties,  imposts  and  excises,  should  be 
apportioned  according  to  the  popula- 
tion? 

Mr.  Choate  asserted  that  the  tax  upon 
real  estate,  the  rents  and  incomes  there- 
from, was  a  direct  tax,  and  that  the 
members  of  the  constitutional  conven- 
tion had  them  in  mind  as  a  subject  of 
direct  tax  when  they  used  that  term.  He 
took  that,  he  said,  not  from  anything 
that  had  been  said  by  Justice  Patterson 
or  anybody  else  in  an  effort  to  limit  or 
prescribe  the  meaning  of  the  constitu- 
tion, but  from  the  generally  and  univer- 
sally acknowledged  consent  of  mankind, 
then  and  now.  There  had  been  three 
periods  of  direct  taxation — in  1792,  when 
trouble  with  France  was  apprehended; 
during  the  war  of  1812,  and  in  the  war 
of  the  rebellion.  The  first  was  emble- 
matic of  them  all^t  was  a  direct  tax 
upon  real  estate,  not  naked  land,  as  Mr. 
Carter  had  contended,  but  upon  houses 
and  lands,  productive  and  unproductive 
alike. 

The    second    proposition    which    Mr. 
Choate   advanced   was   that  a   tax  upon 
rents  from  real  estate  was  indistinguish- 
able from  a  tax  on  the  real  property  it- 
self.    He    had    understood    the    learned 
attorney-general    to    say    no;    that,  the 
rent,   after   it   got   into  a   man's   pocket, 
was  money,  and  that  it  was  that  which 
was   taxed.     The   law    proposed   to   tax 
rents   as   personal   property  and  not  as 
real  estate.     But  how  could  anyone  pay 
the  tax  upon  land?    He  put  the  question, 
he  said,  as  applied  to  the  practical,  or- 
dinary business  affairs  of  life,  of  which 
the  court  was  bound  to  take  knowledge 
— except  as  he  paid  it  from  the  rentals? 
The  owner  could  not  take  a  piece  of  the 
land   and  give  it  to  the  government  as 
an  equivalent  for  the  tax.     Is  there  any 
difference,  then,  between  a  tax  on  land 
and  a  tax  on  the  rents  therefrom?    An 
unapportioned  tax  upon  real  estate  the 
constitution   forbade;   could  such   a   tax 
be  laid  upon  the  rents  or  income  there- 


of? No  one  would  say  that  such  a  law 
could  be  maintained.  A  tax  upon  land 
being  forbidden,  Congress  could  not 
wipe  out  the  value  of  the  land  by 
a  tax  upon  the  income  therefrom 
for  a  period  of  years.  We  have 
been  lawyers  all  our  lives  and 
have  followed  scores  of  generations  in 
considering  the  difference  between  land 
and  the  rent  or  profit  thereon.  We  have 
found  it  to  be  an  intangible  and  insen- 
sible thing. 

Illustrating  this,  he  quoted  Coke  upon 
Littleton,  which,  he  said,  had  been  the 
law  in  all  English  Christendom  ever 
since,  that  when  a  land  owner  grants 
the  profits  of  his  lands  to  another,  the 
fee  to  the  land  itself  passes,  for  what  is 
land  but  the  profit  thereon? 

The  attorney-general  had  said  that  the 
law    taxed    rents    as    personal    property 
and  not  as   rents.     If  that  were   so,   it 
would     still     need     to    be     apportioned 
among  the  states   according  to  popula- 
tion,  to    be    effective;   but   the   law   as- 
sessed a  tax  on  rents  as  such,  and  not 
as    personal    property.      He    quoted   nu- 
merous decisions  by  the  Supreme  Court 
of   the   United   States   itself   that   a   tax 
upon  the  profits  arising  from  a  certain 
business   or   thing  was   a  tax  upon  the 
business  or  thing  itself.     Therefore,  he 
submitted  the  proposition,  although  with 
diffidence,     because     it     had     been     so 
stoutly  contested  by  his  learned  adver- 
saries,  that   a   tax  upon   rents   is  a   tax 
upon    land,   and   required,  by   the   same 
law  and  the  same  constitution,  to  be  ap- 
portioned   among   the   states,    according 
to  population,  to  be  effective.     And  so 
as  to  personal  property,  a  tax  upon  it 
was  included  within  the  term   of  direct 
taxes  and  valid  only  when  apportioned 
among  the  states. 

Suppose  a  man,  assessed  on  his  per- 
sonal property,  under  a  tax  apportioned 
among  the  states,  should  refuse  to  pay 
on  the  ground  that  it  was  an  excise  tax, 
a  duty,  and  appealed  to  the  courts  for 
relief.  Would  any  court  grant  it?  Not 
at  all.  The  tax  on  interest  of  United 
States  bonds  was  a  tax  on  the  bond  it- 
self, as  in  the  case  of  rents,  and,  there- 
fore, could  not  be  legally  collected.  The 
interest  on  the  bond  issued  by  the 
United  States  or  any  other  body  politic, 
was  a  part  of  the  bond  itself,  and  insep- 


10 


ARGUMENTS  AND  OPINIONS  IN  THE 


LATEST  FEDERAL  INCOME  TAX  CASE. 


11 


arable  from  it.  What  value  to  me  is  a 
bond  of  the  United  States,  payable  30 
years  hence,  but  for  the  fact  that,  in  the 
meantime,  it  promises  to  pay  me  inter- 
est semi-annually  at  the  rate  of  three 
per  cent.? 

Concluding  this  part  of  the  argument, 
Mr.  Choate  insisted  that  he  had  estab- 
lished beyond  controversy  the  proposi- 
tion that  a  tax  on  rents  is  a  tax  on  land, 
and,  therefore,  a  direct  tax.  The  other 
side  had  our  briefs  two  weeks,  and  the 
only  answer  or  suggestion  they  have 
been  able  to  make  is  that  of  the  attor- 
ney-general, that  the  law  taxes  rents  as 
money  in  a  man's  pocket  and  not  as 
rents. 

Mr.  Choate  sketched  in  a  most  inter- 
esting and  instructive  way  the  com- 
promise made  in  the  constitutional  con- 
vention relating  to  the  matter  of  taxa- 
tion, by  which  the  states  surrendered  to 
the  United  States  the  sole  right  to  levy 
excises,  duties  and  imposts  and  to  con- 
trol and  regulate  commerce  between  the 
states,  and  the  right  to  levy  a  direct  tax 
upon  the  real  and  personal  property  in 
the  states  as  an  ultimate  source  of  reve- 
nue for  the  maintenance  of  the  govern- 
ment itself.  It  was  by  that  bargain  that 
the  adoption  of  the  constitution  was 
brought  about,  and  the  question  now 
was,  said  Mr.  Choate,  whether  the  bar- 
gain should  be  repudiated  and  the  sea- 
board states  should  take  back  the  price 
paid  for  it. 

Representation  and  direct  taxation 
went  hand  in  hand.  It  was  the  only 
thing  that  the  framers  of  the  constitu- 
tion said  twice  in  that  instrument. 
What  was  the  reason?  It  was  that  those 
men  were  fresh  from  the  conflict  over 
the  injustice  of  taxation  without  repre- 
sentation, and  they  proposed  to  prevent, 
as  far  as  they  could,  the  possibility  of 
such  an  event  as  is  proposed  in  the 
present  law,  that  the  representatives  of 
a  large  proportion  of  the  population 
should  vote  to  compel  the  smaller  pro- 
portion of  population  to  pay  more  than 
their  just  part  of  the  taxes. 

Mr.  Choate  asserted  that  the  question 
that  rents  are  inseparable  from  real  es- 
tate, had  never  been  decided  by  the 
court;  it  had  never  been  considered  nor 
even  presented  for  consideration. 

In  the  Springer  case,  said  Mr.  Choate, 


Mr.  Springer  sued  for  the  recovery  of  a 
year's  income  tax,  when  he  was  a  rep- 
resentative of  the  outside  world,  not  a 
representative  in  Congress  as  he  has 
been  since,  and  he  averred  that  he  had 
earned  $50,000  that  year.  He  was  a 
lawyer,  and  advocated  his  own  cause. 
Probably  he  was  an  exception  to  the 
rule  which  usually  obtains  in  those 
cases. 

There  was  nothing  in  the  pleadings  in 
that  case  nor  in  the  decision,  said  Mr. 
Choate,  which  precluded  an  affirmance 
of  the  proposition  for  which  he  con- 
tended. 

Mr.  Choate  then  proceeded  to  give  the 
court,  at  considerable  length,  his  defini- 
tion of  the  "uniform"  clause  in  the  con- 
stitution. Mr.  Carter,  he  said,  had  ex- 
plained that  it  meant  that  the  tax  should 
extend  throughout  the  United  States, 
and  related  to  the  plan  and  method  of 
collecting  the  tax. 

Counsel  felt  constrained  to  concede 
something  to  the  phrase,  but  the  attor- 
ney-general, in  himself  representing  the 
august  power  of  the  legal  branch  of  the 
government,  used  the  sponge,  and 
sweeping  his  arm  across  the  face  of  the 
instrument,  calmly  expunged  the  words 
as  "mere  surplusage." 

The  meaning  of  the  word,  Mr.  Choate 
said,  was  that  in  the  levying  of  imposts, 
duties  and  excises,  whenever  done,  there 
should  be  equal  and  exact  relations  be- 
tween the  government  and  each  and 
every  citizen  throughout  the  United 
States.  The  rule  was  introduced  to  put 
an  end  to  the  previously  existing  rule 
of  inequality.  This  construction  of  the 
phrase,  said  Mr.  Choate,  had  been  uni- 
formly acted  upon  by  the  government 
ever  since  its  beginning.  "I  call  your 
honor's  attention,"  he  said,  "to  the  fact 
that  there  was  never  a  tariff  act  passed 
by  the  United  States  which  made  the 
rate  of  duty  depend  upon  the  person  or 
corporation  which  paid  it." 

Justice  White — Mr.  Choate,  would  not 
that  construction  destroy  all  specific 
duties  provided  in  every  tariff  act? 

Mr.  Choate — We  do  not  claim  such  a 
right.  We  do  not  say  that  every  like 
article  shall  pay  the  same  rate  of  duty, 
or  that  every  special  class  shall  pay  the 
same  rate  of  duty,  or  that  every  article 


I 


1^ 


of  a  special  class  shall  pay  the  same 
rate. 

Justice  White — Do  not  all  the  decis- 
ions of  state  courts  upon  the  term 
"equal  and  uniform"  establish  the  fact 
that  you  cannot  tax  a  man  with  one  dol- 
lar's worth  of  property  at  the  same  rate 
you  do  with  $10? 

Mr.  Choate — I  think  not. 

Not  a  single  decision  had  been  found 
in  either  the  federal  or  state  books,  Mr. 
Choate  said,  that  varied  from  the  mean- 
ing of  the  word  contended  for  by  him- 
self and  associate  counsel — that  the 
taxes  shall  be  equal  as  between  man  and 
man. 

This  brought  him,  said  Mr.  Choate,  to 
the  startling  and  monstrous  doctrine 
propounded  by  the  representatives  of 
the  government,  that  the  inequalities  or 
supposed  inequalities  of  a  tariff  bill 
could  not  be  compensated  for  by  irregu- 
larities in  another  form  of  taxation. 

"Is  this  court  ready  to  go  to  that 
length?"  he  asked.  Before  leaving  this 
branch  of  the  case,  Mr.  Choate  said 
there  was  an  unvarying  line  of  decisions 
by  state  courts  confirming  the  proposi- 
tion contended  for  by  him.  And  it  was 
illustrated  and  strengthened  by  the  ex- 
ception quoted  from  Louisiana. 

Mr.  Choate  then  proceeded  to  discuss 
the  illegal  exceptions  made  by  the  bill, 
the  first  the  chief  of  which  was  the  ex- 
emption of  incomes  of  $4,000  and  less. 
The  meaning  and  import  of  the  law,  he 
asserted,  was  to  punish  the  rich  for 
being  in  that  condition.  Counsel  who 
had  preceded  him  advocated  the  law  for 
the  reason  that  it  affected  the  rich  men 
only,  the  extremely  rich.  I  thought 
there  was  one  law  for  the  rich  and  for 
the  poor.  Oh,  we  are  at  the  parting  of 
the  ways,  your  honors. 

The  bill,  he  declared,  was  a  deliberate 
strike  by  those  who  voted  for  it  at  those 
parts  of  the  United  States  where  money 
has  accumulated.  The  exemption  of 
$4,000  was  the  same  as  other  blows  at 
the  constitution  within  the  four  corners 
of  the  document. 

No  wonder  that  the  President  refused 
to  sign  the  bill;  no  wonder  that  neither 
the  President  nor  the  Secretary  of  the 
Treasury  recommended  the  adoption  of 
the  income  tax. 


Justice  Harlan — Do  you  concede  that 
any  exception  may  be  made? 

Mr.  Choate — We  do  not. 

While  discussing  the  inequalities  of 
exemption  accorded  to  individuals  and 
to  corporations.  Justice  Brown  sug- 
gested: 

"May  it  not  have  been  that  the  exemp- 
tion of  $4,000  to  the  individual  was  al- 
lowed as  a  reasonable  amount  for  do- 
mestic and  household  expenditures, 
while  the  corporation  is  not  compelled 
to  spend  anything  for  those  purposes?" 

Mr.  Choate — My  impression  is,  your 
honor,  that  the  law  is  made  alike  for 
the  corporation  and  individual.  The 
discrimination  against  corporations  is 
but  a  punishment  for  their  having  en- 
gaged in  that  form  of  business  which 
their  states  had  held  out  to  them  as  a 
proper  and  desirable  method. 

Mr.  Choate  condemned  the  exceptions 
made  in  behalf  of  religious,  charitable 
and  educational  institutions,  mutual  in- 
surance companies  and  savings  banks. 

The  last  point  presented  was  that 
state  and  municipal  bonds  were  entitled 
to  exemption  from  the  operations  of  the 
law,  upon  the  same  theory  that  national 
bonds  were  exempt  from  state  taxation. 


THE  DECISION  AND  HOW 
THE  JUSTICES  STOOD. 

On  the  8th  of  April,  1895,  all  the 
justices  who  sat  in  the  case  decided 
that  so  much  of  the  Wilson  law  as 
applied  to  incomes  from  state  and 
municipal  securities  and  government 
bonds  was  unconstitutional,  on  the 
ground  that  it  would  be  destructive 
to  our  complex  system  of  govern- 
ment if  either  the  federal  or  state 
governments  could  tax  the  securities 
issued  by  the  other. 

By  one  majority  the  court  decided 
that  so  much  of  the  law  as  taxed  in- 
comes derived  from  real  estate  and 
personal  property  was  unconstitu- 
tional, on  the  ground  that  such  levy 
is  a  direct  tax  and  should  have  been 
apportioned  among  the  several 
states  according  to  their  population. 


12 


ARGUMENTS  AND  OPINIONS  IN  THE 


On  the  other  questions,  the  chief 
of  which  was  whether  a  law  exempt- 
ing $4,000  or  any  other  sum  from 
paying  an  income  tax  was  uniform 
taxation  within  the  meaning  of  the 
constitution,  the  justices  were  evenly 
divided,  therefore  a  full  decision  had 
to  await  the  return  of  Justice  Jack- 
son, who  was  detained  by  illness. 

On  Monday,  May  20,  Justice  Jack- 
son having  resumed  his  duties,  the 
court  by  one  majority  decided  all 
parts  of  the  income  tax  feature  of 
the  law  unconstitutional. 

In  the  first  decision  Justice  Shiras 
of  Pennsylvania  had  voted  to  sus- 
tain the  tax  on  incomes  from  real 
and  personal  property.  Just  before 
the  second  decision  was  rendered  he 
notified  his  associates  that  on  more 
mature  reflecticm  he  had  changed  his 
mind  and  now  held  that  feature 
unconstitutional.  Justice  Jackson, 
however,  decided  the  other  way, 
leaving  the  court  as  a  whole  stand- 
ing as  before  with  one  majority 
against  the  law. 

Party  lines  were  crossed  by  both 
sides,  but  sectional  lines  obviously 
affected  the  minds  of  some  of  the 
justices  in  making  their  interpreta- 
tions. 

Those  who  voted  to  sustain  the 
law  were  Justice  Harlan  (Rep.)  of 
Kentucky,  Justice  Brown  (Rep.)  of 
Michigan,  Justice  White  (Dem.)  of 
Louisiana,  and  Justice  Jackson 
(Dem.)  of  Tennessee — 4. 

Those  voting  against  the  law  were 
Chief  Justice  Fuller  (Dem.)  of  Il- 
linois, Justice  Field  (Dem.)  of  Cali- 
fornia, Justice  Brewer  (Rep.)  of 
Kansas,  Justice  Gray  (Rep.)  of  Mas- 
sachusetts and  Justice  Shiras  (Rep.) 
of  Pennsylvania — 5. 

Sectionally  the  majority  was  well 
distributed — one  justice  being  from 


New  England,  one  from  the  Middle 
States,  two  from  the  West  and  one 
from  the  Pacific  coast — all  from  the 
North.  The  minority  was  composed 
of  one  from  the  West  and  three  from 
the  South. 

Only  three  of  the  questions  then 
in  dispute  have  a  bearing  on  the 
question  of  ratifying  the  pending 
amendment,  and  they  are  (i) 
whether  a  direct  tax  on  property 
and  income  should  be  apportioned 
among  the  states  according  to  their 
population;  (2)  whether  a  tax  is  uni- 
form if  incomes  to  a  certain  amount 
are  exempted,  and  (3)  whether  in- 
comes from  federal  or  state  bonds 
can  be  taxed  without  danger  of 
breaking  up  the  government. 

The  court  having  been  unanimous 
on  this  last  point,  it  may  be  thought 
that  no  congress  will  lay  such  a  tax, 
but  as  the  pending  amendment  does 
not  prohibit  it,  and  will  be  thought 
by  some  to  supersede  not  only  the 
decision  but  the  ground  upon  which 
it  was  founded,  it  may  be  claimed 
by  others  that  the  ratification  of  the 
amendment  cannot  be  otherwise  in- 
terpreted than  as  the  granting  of 
perfect  liberty  to  congress  and  to 
state  legislatures  to  tax  each  other's 
securities  and  therefore  to  destroy 
them  in  some  crisis. 


GROUNDS  OF  THE  DECISION,  AS 

STATED  BY  THE  CHIEF 

JUSTICE. 

1.  That  by  the  Constitution  Federal 
taxation  is  divided  into  two  great 
classes — direct  taxes,  and  (2)  duties,  im- 
posts and  excises. 

2.  That  the  imposition  of  direct  taxes 
is  governed  by  the  rule  of  apportion- 
ment among  the  several  States,  accord- 
ing to  numbers,  and  the  imposition  of 
duties,  imposts  and  excises  by  the  rule 
of  uniformity  throughout  the  United 
States. 


LATEST  FEDERAL  INCOME  TAX  CASE. 


13 


3.  That  the  principle  that  taxation 
and  representation  go  together  was  in- 
tended to  be  and  was  preserved  in  the 

■•  Constitution  by  the  establishment  of  the 
rule  of  apportionment  among  the  sev- 
eral States. 

4.  That  the  States  surrendered  their 
power  to  levy  imposts  and  to  regulate 

^  commerce  to  the  General  Government, 
and  gave  it  the  concurrent  power  to 
levy  direct  taxes  in  reliance  on  the  pro- 
tection afforded  by  the  rules  prescribed, 
and  that  the  compromises  of  the  Consti- 
tution    cannot   be    disturbed   by   legisla- 

^      tive  action. 

5.  That  these  conclusions  result  from 
the  text  of  Uic  Constitution  and  are  sup- 
ported by  the  historical  evidence  fur- 
nished by  the  circumstances  surrounding 

^j      the  framing  and  adoption  of  that  instru- 
'      ment,    and    the    views    of    those    who 
framed  and  adopted  it. 

6.  That  the  understanding  and  expec- 
tation at  the  time  of  the  adoption  of  the 
Constitution  was  that  direct  taxes  would 

'0  not  be  levied  by  the  General  Govern- 
ment, except  under  the  pressure  of  ex- 
traordinary exigency,  and  such  has 
been   the   practice   down   to   August   15, 

1894. 

7.  That  the  taxes  on  real  estate  be- 
1(      long  to   the   class  of   direct   taxes,   and 

that  the  taxes  on  the  rent  or  income  of 
real  estate,  which  is  the  incident  of  its 
ownership,  belong  to  the  same  class,  and 
that  taxe^  on  personal  property  or  on 
»>  the  income  of  personal  property  are 
likewise  direct  taxes. 

8.  That  by  no  previous  decision  of 
this  court  has  this  question  been  adju- 
dicated  to   the   contrary  of  the   conclu- 

f»       sions  now  announced. 


y. 


'\K 


JUSTICE    HARLAN'S   DISSENTING 
OPINION. 

In  my  judgment — to  say  nothing  of 
the  disregard  of  the  former  adjudica- 
tions of  this  court,  and  of  the  practice 
of  the  government  for  a  century — this 
decision  may  well  excite  the  gravest 
apprehensions.  It  strikes  at  the  very 
foundations  of  national  authority,  in  that 
it  denies  to  the  general  government  a 
power  which  is,  or  may  become  at  some 
time,  in  a  great  emergency,  such  as  that 
of  war,  vital  to  the  existence  and  preser- 


vation of  the  union.  It  tends  to  re-es- 
tablish that  condition  of  helplessness  in 
which  Congress  found  itself  during  the 
period  of  the  articles  of  confederation, 
when  it  was  without  power,  by  laws 
operating  directly  upon  individuals,  to 
lay  and  collect,  through  its  own  agents, 
taxes  sufficient  to  pay  the  debts  and  de- 
fray the  expenses  of  government,  and 
was  dependent  in  all  sudh  matters  upon 
the  good  will  of  the  states,  and  their 
promptness  in  meeting  the  requisitions 
made  upon  them  by  Congress. 

Any  attempt  upon  the  part  of  Con- 
gress to  apportion  taxation  of  incomes 
among  the  states  upon  the  basis  of  their 
population  would,  and  properly  ought 
to,  arouse  such  indignation  among  the 
freemen  of  America  that  it  would  never 
be  repeated. 

Under  that  system  the  people  of  a 
state  containing  1,000,000  inhabitants, 
who  receive  annually  $20,000,000  of  in- 
come from  real  and  invested  personal 
property,  would  pay  no  more  than 
would  be  exacted  from  the  people  of 
another  state  having  the  same  number 
of  inhabitants,  but  who  receive  an  in- 
come from  the  same  kind  of  property  of 
only  $5,0000,000.  If  this  new  theory  of 
the  constitution,  as  I  believe  it  to  be; 
if  this  new  departure  from  the  way 
marked  out  by  the  fathers  is  justified  by 
the  fundamental  law,  the  American  peo- 
ple cannot  too  soon  amend  their  con- 
stitution. 


DISSENTING    OPINION    OF    JUS- 
TICE WHITE. 

1.  The  Government  of  the  United 
States  possesses  plenary  powers  of  tax- 
ation— all  powers  which  belong  to  any 
Government  as  such — subject  only  to 
the  limitation  imposed  by  the  Constitu- 
tion in  forbidding  the  levying  of  an  ex- 
port tax. 

2.  This  power,  unlimited  in  itself,  is 
limited  as  to  form  by  the  requirement 
that  direct  taxes  shall  be  apportioned 
according  to  population,  and  duties,  ex- 
cises and  imposts  shall  be  uniform 
throughout  the  United  States. 

3.  The  limit  as  to  apportionment  is 
not  a  limitation  on  the  power  of  taxa- 
tion, but  a  limitation  of  the  manner  in 
which  the  power  shall  be  exercised. 


14 


ARGUMENTS  AND  OPINIONS  IN  THE 


I 


LATEST  FEDERAL  INCOME  TAX  CASE. 


15 


4.  Whether  a  Federal  income  tax  is 
direct  or  indirect  does  not  depend  alone 
upon  the  theories  of  economists,  but 
upon  the  sense  in  which  these  words  are 
used  in  the  Constitution,  as  heretofore 
interpreted. 

5.  Shortly  after  the  Constitution  was 
framed  (1794)  Congress  put  a  construc- 
tion upon  these  words  by  imposing  a 
tax  on  carriages.  The  act  was  passed 
by  a  large  majority,  and  was  approved 
by  Washington. 

After  reviewing  the  cases,  begin- 
ning with  the  Hylton  case  in  1796 
and  ending  with  the  Springer  case 
in  1880,  Justice  White  claimed  that 
all  the  decisions  of  the  supreme 
court  relating  to  the  question  had 
held  that  an  income  tax  is  an  in- 
direct tax  and  does  not  need  to  be 
apportio<ned  among  the  states  ac- 
cording to  their  population. 


JUSTICE    FIELD    IN    OPPOSITION 
TO  THE  TAX. 

Some  decisions  of  this  Court  have 
qualified  or  thrown  doubts  upon  the 
exact  meaning  of  the  words  "direct 
taxes."  Thus  in  Springer  agt.  United 
States  (102  U.  S.  586),  it  was  held  that 
a  tax  upon  gains,  profits  and  income  was 
an  excise  or  duty,  and  not  a  direct  tax 
within  the  meaning  of  the  Constitution, 
and  that  its  imposition  was  not  there- 
fore unconstitutional.  And  in  Pacific 
Insurance  Company  agt.  Soule  (7  Wall. 
433)  it  was  held  that  an  income  tax  or 
duty  upon  the  amounts  insured,  renewed 
or  continued  by  insurance  companies, 
upon  the  gross  amounts  of  premiums  re- 
ceived by  them  and  upon  assessments 
made  by  them,  and  upon  dividends  and 
undistributed  sums,  was  not  a  direct  tax, 
but  a  duty  or  excise.  In  the  discussions 
on  the  subject  of  direct  taxes  in  the 
British  Parliament  an  income  tax  has 
been  generally  designated  as  a  direct  tax, 
differing  in  that  respect  from  the  decision 
of  this  court  in  Springer  against  the 
United  States;  but,  whether  the  latter 
can  be  accepted  as  correct  or  otherwise, 
it  does  not  affect  the  tax  upon  real  prop- 
erty and  its  rents  and  income  as  a  di- 
rect  tax.      Such    a    tax   is   by   universal 


consent  recognized  to  be  a  direct  tax. 
As  stated,  the  rents  and  income  of  real 
property  are  included  in  the  designation 
of  direct  taxes  as  part  of  the  real  prop- 
erty. Such  has  been  the  law  in  England 
for  centuries,  and  in  this  country  from 
the  early  settlement  of  the  colonies;  and 
it  is  strange  that  any  member  of  the 
legal  profession  should  at  this  day  ques- 
tion a  doctrine  which  has  always  been 
thus   accepted  by  common-law  lawyers. 

But  the  law  is  not  invalid  merely  in 
its  disregard  of  the  rule  of  apportion- 
ment of  the  direct  tax  levied.  There  is 
another  and  equally  cogent  objection  to 
it.  In  taxing  incomes  other  than  rents 
and  profits  of  real  estate  it  disregards 
the  rule  of  uniformity  which  is  pre- 
scribed in  such  cases  by  the  Constitu- 
tion. .  .  .  The  taxes  created  by  the  law 
under  consideration  as  applied  to  sav- 
ings banks  or  insurance  companies, 
whether  of  fire,  life  or  marine,  or  to 
buildings  or  other  associations,  or  to 
conduct  any  other  kind  of  business,  are 
excise  taxes,  and  fall  within  the  require- 
ment, so  far  as  they  are  laid  by  Con- 
gress, that  they  must  be  uniform 
throughout  the  United  States. 

The  Income  Tax  law  under  consider- 
ation is  marked  by  discriminating  fea- 
tures which  affect  the  whole  law.  It 
discriminates  between  those  who  receive 
an  income  of  $4,000  and  those  who  do 
not.  It  thus  vitiates,  in  my  judgment, 
by  this  arbitrary  discrimination,  the 
whole  legislation. 

The  present  assault  upon  capital  is 
but  the  beginning.  It  will  be  but  the 
stepping  stone  to  others,  larger  and 
more  sweeping,  till  our  political  con- 
tests will  become  a  war  of  the  poor 
against  the  rich;  a  war  constantly  grow- 
ing in  intensity  and  bitterness.  "If  the 
Court  sanctions  the  power  of  discrimi- 
nating taxation,  and  nullifies  the  uni- 
formity mandate  of  the  Constitution," 
as  said  by  one  who  has  been  all  his  life 
a  student  of  our  institutions,  "it  will 
mark  the  hour  when  the  sure  decadence 
of  our  present  Government  will  com- 
mence." If  the  purely  arbitrary  limita- 
tion of  $4,000  in  the  present  law  can  be 
sustained,  none  having  less  than  that 
amount  of  property  being  assessed  or 
taxed  for  the  support  of  the  Govern- 
ment,   the     limitation     of     future     Con- 


\t 


a 


gresses  may  be  fixed  at  a  much  larger 
sum,  at  $5,000  or  $10,000  or  $20,000, 
parties  possessing  that  amount  alone 
I  being  bound  to  bear  the  burdens  of 
Government;  or  the  limitation  may  be 
designated  at  such  an  amount  as  a  board 
of  walking  delegates  may  deem  neces- 
sary. There  is  no  safety  in  allowing  the 
limitation  to  be  adjusted  except  in  strict 

^'compliance  with  the  mandates  of  the 
Constitution,  which  require  its  taxation 
to  be  uniform  in  operation,  and,  so  far 
as  practicable,  in  proportion  to  their 
property,  equal  upon  all  citizens.     Un- 

•  less  the  rule  of  the  Constitution  governs, 
a  majority  may  fix  the  limitation  at  such 
rate  as  will  not  include  any  of  their  own 
number. 


%\ 


')s 


\  1 


JUSTICE  JACKSON'S  DISSENTING 
OPINION. 

The  constitutional  provision  clearly 
implied  in  the  requirement  of  apportion- 
ment is  that  a  direct  tax  is  such  and 
such  only  as  can  be  apportioned  without 
glaring  inequality  and  manifest  injustice 
and  unfairness  as  between  those  subject 
to  its  burden.  The  most  natural  and 
practical  case  by  which  to  determine 
what  is  a  direct  tax  in  the  sense  of  the 
constitution  is  to  ascertain  whether  the 
tax  can  be  apportioned  among  the  sev- 
er.il  states  according  to  their  respective 
number,  with  reasonable  approximation 
to  justice,  fairness  and  equality  to  all 
the  citizens  and  inhabitants  of  the  coun- 
try who  may  be  subject  to  the  operation 
of  the  law.  The  fact  that  a  tax  cannot 
be  apportioned  without  producing  gross 
injustice  and  inequality  among  those  re- 
quired to  pay  it  should  settle  the  ques- 
tion that  it  was  not  a  direct  tax  within 
the  true  sense  and  meaning  of  those 
words  as  they  are  used' in  the  constitu- 
tion. 

Let  us  apply  this  test.  Let  us  take 
the  illustration  suggested  in  the  opinion 
of  the  court.  Congress  lays  a  tax  of 
$30,000,000  upon  the  incomes  of  the 
country  above  a  certain  designated 
amount  and  directs  that  tax  to  be  ap- 
portioned among  the  several  states  ac- 
cording to  their  number,  and  when  so 
apportioned  to  be  prorated  among  the 
citizens  of  the  respective  states  coming 
within  the  operation  of  the  law.  We 
take  two  states  of  equal  population,  the 


citizens  in  one  state  having  the  requisite 
income  subject  to  the  tax,  say  5,000  in 
number,  and  the  citizens  of  the  other 
state  that  is  of  equal  population  having 
10,000  subject  to  the  operation  of  the 
law.  Now,  what  is  the  result  of  the  ap- 
portionment of  the  tax?  The  citizens  in 
one  state  will  be  called  upon  to  pay  on 
their  income  just  twice  the  amount  that 
the  citizens  of  the  other  state  will  pay 
upon  theirs.  Take  the  new  state  of 
Washington  for  example,  and  the  old 
state  of  Rhode  Island.  Washington  has, 
we  will  say,  about  5,000  citizens  within 
its  jurisdiction  who  are  subject  to  the 
operation  of  this  law;  Rhode  Island  has 
50,000.  The  citizen  of  Washington,  by 
the  rule  of  apportionment,  will  be  re- 
quired to  pay  ten  times  the  rate  of  taxa- 
tion on  his  income  which  the  citizen  of 
Rhode  Island  pays.  Extend  this  rule  as 
it  may  be  extended,  and  as  I  have  not 
the  strength  to  extend  it,  to  all  the 
states,  and  the  result  is  that  the  larger 
the  number  of  those  subject  to  the  opera- 
tion of  the  law  in  any  given  state,  the 
smaller  their  proportion  of  the  tax  and 
the  smaller  their  rate  of  taxation,  while, 
in  respect  to  the  smaller  number  in  the 
state,  the  greater  will  be  their  rate  of 
taxation  on  the  same  income. 

But  it  is  said  that  this  inequality  was 
intentional  upon  the  part  of  the  framers 
of  the  constitution,  that  it  was  adopted 
with  a  view  to  protect  property  owners 
as  a  class.  What  an  idea!  Inequality 
among  its  own  citizens  in  this  govern- 
ment being  intentionally  adopted  by  the 
framers  of  the  constitution!  Why,  the 
very  object  of  its  formation  was  the  re- 
verse. The  government  is  not  dealing 
with  the  states  in  this  matter;  it  is  deal- 
ing with  its  own  citizens  throughout  the 
country,  irrespective  of  state  lines;  and 
to  say  that  the  constitution  which  was 
intended  to  promote  peace  and  justice, 
either  in  its  whole  or  in  any  part  there- 
of, ever  intended  to  work  out  such  a  re- 
sult and  produce  such  inequality  be- 
tween the  citizens  of  a  common  country, 
is  beyond  all  reason  in  my  judgment. 


JUSTICE    BROWN'S    DISSENTING 
OPINION. 

I  regard  it  as  very  clear  that  the 
clause  requiring  direct  taxes  to  be  ap- 
portioned to  the  population  has  no  ap- 


i  ri 


16 


ARGUMENTS  AND  OPINIONS  IN  THE 


plication  to  taxes  which  are  not  capable 
of  apportionment  according  to  popula- 
tion. It  cannot  be  supposed  that  the 
convention  could  have  contemplated  a 
practical  inhibition  upon  the  power  of 
Congress  to  tax  in  some  way  all  taxable 
property  within  the  jurisdiction  of  the 
federal  government,  for  the  purposes  of 
a  national  revenue.  And  if  the  proposed 
tax  were  such  that  in  its  nature  it  could 
not  be  apportioned  according  to  popula- 
tion, it  naturally  follows  that  it  could 
not  have  been  considered  a  direct  tax, 
within  the  meaning  of  the  clause  in 
question. 

There  is,  in  certain  particulars,  a  want 
of  uniformity  in  this  law,  which  may 
have  created  in  the  minds  of  some  the 
impression  that  it  was  studiously  de- 
signed, not  only  to  shift  the  burden  of 
the  taxation  upon  the  wealthy  class,  but 
to  exempt  certain  favored  corporations 
from  its  operation.  There  is  certainly 
no  want  of  uniformity  within  the  mean- 
ing of  the  constitution,  since  we  have 
repeatedly  held  that  the  uniformity 
there  referred  to  is  territorial  only. 
(Loughborough  vs.  Blake,  s  Wheatv 
317;  Head  Money  cases,  112  U.  S.  580). 
In  the  words  of  the  constitution,  the  tax 
must  be  uniform  "throughout  the 
United  States." 

But  this  does  not  deprive  the  legisla- 
ture of  the  power  to  make  exemptions, 
provided  such  exemptions  rest  upon 
some  principle,  and  are  not  purely  arbi- 
trary, or  created  solely  for  the  purpose 
of  favoring  some  person  or  body  of  per- 
sons. Thus  in  every  civilized  country 
there  is  an  exemption  of  small  incomes, 
which  it  would  be  manifest  cruelty  to 
tax,  and  the  power  to  make  such  exemp- 
tions once  granted,  the  amount  is  within 
the  discretion  of  the  legislature,  and,  so 
long  as  the  power  is  not  wantonly 
abused,  the  courts  are  bound  to  respect 
it. 

In  this  law  there  is  an  exemption  of 
$4,000,  which  indicates  a  purpose  on  the 
part  of  Congress  that  the  burden  of  this 
tax  should  fall  on  the  wealthy,  or  at 
least  upon  the  well-to-do.  If  men  who 
have  an  income  or  property  beyond 
their  pressing  needs  are  not  the  ones  to 
pay  taxes,  it  is  difficult  to  say  who  are; 
in  other  words,  enlightened  taxation  is 
imposed  upon    property    and    not  upon 


persons.  The  exemption  of  $4,000  is  de- 
signed, undoubtedly,  to  cover  the  actual 
living  expenses  of  the  laxge  majority  of 
families,  and  the  fact  that  it  is  not  ap-  . 
plied  to  corporations  is  explained  by  the 
fact  that  corporations  have  no  corre- 
sponding expenses.  The  expenses  of 
earning  their  profits  are,  of  course,  de- 
ducted in  the  same  manner  as  the  cor- 
responding expenses  of  a  private  indi-  (^ 
vidual  are  deductible  from  the  earnings 
of  his  business.  The  moment  the  profits 
of  a  corporation  are  paid  over  to  the 
stockholders,  the  exemption  of  $4,000 
attaches  to  them  in  the  hands  of  each  ^, 
stockholder.  ^' 

The  fact  that  savings  banks  and  mu- 
tual insurance  companies,  whose  profits 
are  paid  to  policy  holders,  are  exempted, 
is  explicable  on  the  theory  (whether  a 
sound  one  or  not  I  need  not  inquire)  0^ 
that  these  institutions  are  not,  in  their 
original  conception,  intended  as  schemes 
for  the  accumulation  of  money,  and  if 
this  exemption  operates  as  an  abuse  in 
certain  cases,  and  with  respect  to  cer- 
tain very  wealthy  corporations,  it  is  if, 
probable  that  the  recognition  of  such 
abuses  was  necessary  to  the  exemption 
of  the  whole  class. 


CHIEF  JUSTICE  FULLER'S   OPIN- 
ION AGAINST  A  FEDERAL 
INCOME  TAX. 

As  heretofore  stated,  the  constitution 
divided  federal  taxation  into  two  great 
classes,  the  class  of  direct  taxes  and  the 
class  of  duties,  imposts  and  excises,  and 
prescribed  two  rules  which  qualified  the 
grant  of  power  to  each  class.  The 
power  to  lay  direct  taxes  apportioned 
among  the  several  states  in  proportion 
to  their  representation  in  the  popular 
branch  of  congress,  a  representation 
based  on  population  as  ascertained  by 
the  census,  was  plenary  and  absolute, 
but  to  lay  direct  taxes  without  appor- 
tionment was  forbidden.  The  power  to 
lay  duties,  imposts  and  excises  was  sub- 
ject to  the  qualification  that  the  imposi- 
tion must  be  uniform  throughout  the 
United  States. 

The  words  of  the  constitution  are  to 
be  taken  in  their  obvious  sense  and  to 
have  a  reasonable  construction.  We 
know   of   no   reason   for   holding   other- 


/> 


LATEST  FEDERAL  INCOME  TAX  CASE. 


IT 


I 


,v-v 


wise  than  that  the  words  "direct  taxes" 
on  the  one  hand  and  "duties,  imposts 
and  excises"  on  the  other  were  used  in 
the  constitution  in  their  natural  and  ob- 
vious sense;  nor,  in  arriving  at  what 
those  terms  embrace,  do  we  perceive 
any  ground  for  enlarging  them  beyond, 
or  narrowing  them  within,  their  natural 
and  obvious  import  at  the  time  the  con- 
stitution  was  framed  and  ratified. 

The  reasons  for  the  clauses  of  the  con- 
stitution in  respect  of  direct  taxation 
are  not  far  to  seek.  The  states,  respec- 
tively, possessed  plenary  powers  of  tax- 
ation. They  could  tax  the  property  of 
their  citizens  in  such  manner  and  to 
such  extent  as  they  saw  fit;  they  had 
unrestricted  powers  to  impose  duties  or 
imposts  on  imports  from  abroad,  and 
excises  on  manufactures,  consumable 
commodities  or  otherwise.  They  gave 
up  the  great  sources  of  revenue  derived 
from  commerce;  they  retained  the  con- 
current power  of  levying  excises,  and 
duties  if  covering  anything  other  than 
excises;  but  in  respect  of  them  the  range 
of  taxation  was  narrowed  by  the  power 
granted  over  interstate  commerce  and 
by  the  danger  of  being  put  at  disadvan- 
tage in  dealing  with  excises  on  manu- 
factures. They  retained  the  power  of 
direct  taxation,  and  to  that  they  looked 
as  their  chief  resource,  but  even  in  re- 
spect of  that  they  granted  the  concur- 
rent power,  and  if  the  tax  were  placed 
by  both  governments  on  the  same  sub- 
ject, the  claim  of  the  United  States  had 
preference.  Therefore  they  did  not 
grant  the  power  of  direct  taxation  with- 
out regard  to  their  own  condition  and 
resources  as  states;  but  they  granted  the 
power  of  apportioned  direct  taxation,  a 
power  just  as  efficacious  to  serve  the 
needs  of  the  general  government,  but 
securing  to  the  states  the  opportunity  to 
pay  the  amount  apportioned,  and  to  re- 
coup from  their  own  citizens  in  the 
most  feasible  way,  and  in  harmony  with 
their  systems  of  local  self  government. 

If,  in  the  conditions  of  wealth  and 
population  in  particular  states,  appor- 
tionment produced  inequality,  it  was  an 
inequality  stipulated  for,  just  as  the 
equal  representation  of  the  states,  how- 
ever small,  in  the  senate  was  stipulated 
for.  The  constitution  ordains  affirma- 
tively   that    each    state    shall   have    two 


members  of  that  body  and  negatively 
that  no  state  shall,  by  amendment,  be 
deprived  of  its  equal  suffrage  in  the 
senate  without  consent.  The  constitu- 
tion ordains  affirmatively  that  represen- 
tatives and  direct  taxes  shall  be  appor- 
tioned among  the  several  states  accord- 
ing to  numbers,  and  negatively  that  no 
direct  tax  shall  be  laid  unless  in  propor- 
tion to  the  enumeration. 

The  founders  anticipated  that  the  ex- 
penditures of  the  states,  their  counties, 
cities  and  towns,  would  chiefly  be  met 
by  direct  taxation  on  accumulated  prop- 
erty, while  they  expected  those  of  the 
federal  government  would  be  for  the 
most  part  met  by  indirect  taxes.  And  in 
order  that  the  power  of  direct  taxation 
by  the  general  government  should  not 
be  exercised  except  on  necessity,  and, 
when  the  necessity  arose,  should  be  so 
exercised  as  to  leave  the  states  at  liberty 
to  discharge  their  respective  obligations, 
and  should  not  be  so  exercised  unfairly 
and  discriminatingly  as  to  particular 
states  or  otherwise,  by  a  mere  majority 
vote,  possibly  of  those  whose  con- 
stituents were  intentionally  not  sub- 
jected to  any  part  of  the  burden,  the 
qualified  grant  was  made.  Those  who 
made  it  knew  that  the  power  to  tax  in- 
volved the  power  to  destroy,  and  that, 
in  the  language  of  Chief  Justice  Mar- 
shall, "the  only  security  against  the 
abuse  of  this  power  is  found  in  the 
structure  of  the  government  itself.  In 
imposing  a  tax  the  legislature  acts  upon 
its  constituents.  This  is,  in  general,  a 
sufficient  se»;urity  against  erroneous  and 
oppressive  taxation."  (4  Wheat.  428). 
And  they  retained  this  security  by  pro- 
viding that  direct  taxation  and  repre- 
sentation in  the  lower  house  of  Con- 
g^ress  should  be  adjusted  on  the  same 
measure.  .  .  . 

The  Chief  Justice  referred  to  the 
Hylton  case  and  showed  that  Mad- 
ison regarded  the  tax  on  carriages 
as  a  direct  tax,  which  should  have 
been  apportioned,  and  that  Fisher 
Ames  considered  it  an  excise  and 
therefore  constitutional,  aind  he  said 
that  the  evidence  is  overwhelming 
that  Hamilton  agreed  with  Ames. 


18 


ARGUMENTS  AND  OPINIONS. 


5M1  the  real  estate  of  the  country,  and 
all  its  invested  personal  property,  are 
open  to  the  direct  operation  of  the  tax- 
ing power  if  an  apportionment  be  made 
according  to  the  constitution.  The  con- 
stitution does  not  say  that  no  direct  tax 
shall  be  laid  by  apportionment  on  any 
other  property  than  land;  on  the  con- 
trary, it  forbids  all  unapportioned  direct 
taxes;  and  we  know  of  no  warrant  for 
excepting  personal  property  from  the 
exercise  of  the  power,  or  any  reason 
why  an  apportioned  direct  tax  cannot  be 
laid  and  assessed,  as  Mr.  Gallatin  said 
in  his  report  when  Secretary  of  the 
Treasury  in  1812,  "upon  the  same  ob- 
jects of  taxation  on  which  the  direct 
taxes  levied  under  the  authority  of  the 
state  are  laid  and  assessed." 

Being  direct,  and  therefore  to  be  laid 
by  apportionment,  is  there  any  real  diffi- 
culty in  doing  so?  Cannot  Congress,  if 
the  necessity  exists  of  raising  thirty, 
forty  or  any  other  number  of  million^ 
dollars  for  the  support  of  the  govern- 
ment in  addition  to  the  revenue  from 
duties,  imposts  and  excises,  apportion 
the  quota  of  each  state  upon  the  basis 
of  the  census,  and  thus  advise  it  of  the 
payment  which  must  be  made,  and  pro- 
ceed to  assess  that  amount  on  all  the 
real  and  personal  property  or  the  in- 
come of  all  persons  in  the  state,  and 
collect  the  same  if  the  state  does  not  in 
the  meantime  assume  and  pay  its  quota 
and  collect  the  amount  according  to  its 
own  system  and  in  its  own  way?  In- 
conveniences might  possibly  attend  the 
levy  of  an  income  tax,  but  that  it  is  ap- 
portionable  is  hardly  denied,  although 
it  is  asserted  that  it  would  operate  so 
unequally  as  to  be  undesirable. 


CONCLUSION. 

The  foregoing  extracts,  it  is  be- 
lieved, show  with  fairness  and  accu- 
racy the  positions  of  the  several 
Justices.  The  dissenting  opinions 
are  largely  based  upon  the  question 
of  policy  and  the  majority  opinions 
hew  closely  to  the  line  of  the  consti- 
tution. 

The  question  now  is,  shall  the  con- 
stitutional compromises  between  the 
States  and  the  Nation,  which  were 
necessary  to  the  formation  of  the 
"more  perfect  union,"  and  under 
which  the  States  still  have  the  same 
rights  and  interests,  be  superseded 
and  done  away  with  by  an  amend- 
ment? This  is  a  question  of  prin- 
ciple. 

In  addition  there  are  two  ques- 
tions of  policy,  and  those  are 
whether,  in  view  of  the  taxation  of 
incomes  by  some  of  the  states  there 
shall  be  double  taxation,  and 
whether,  in  view  of  the  equal  repre- 
sentation of  states  in  the  senate,  and 
the  manifest  desire  in  newer  sections 
of  the  country  to  throw  the  chief 
burden  of  national  taxation  upon  the 
older  sections,  it  will  be  safe  or  just 
to  authorize  them  to  do  it. 

The  pending  amendment  is  not  a 
question  of  reform  in  taxation;  in 
legal  effect  it  is  a  question  of  revolu- 
tionizing the  Government. 


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